Faheem Jehangir KHAN*, Syeda Nida RAZA** and Amina QURESHI***
Abstract
The study analyses fiscal prioritisation and budget rigidity using panel data for 20 districts across the provinces of Punjab, Sindh, Khyber Pakhtunkhwa, and Balochistan, as well as Islamabad. The analysis is based on actual expenditure data taken from Pakistan’s Financial Accounting and Budgeting System (FABS) for a period of five years (2020-2024). Sectoral expenditure shares in development and current spending are first compared across 20 districts, followed by a tier-wise comparison. The division of districts into three tiers is based on administrative status and population size. Fiscal prioritisation is analysed by first comparing development and current expenditures, then identifying the dominant functions (sectors) across both expenditure categories. Budget rigidity is analysed using fixed-effects panel regression as the baseline specification, while the main estimation results are obtained with the bias-corrected Least Squares Dummy Variable (LSDVC) estimator, with Anderson–Hsiao (1982) as the initial consistent estimator, where persistence is captured by one-year-lagged sector shares. Development-to-current actual expenditure ratio and expenditure per capita are used as controls. Furthermore, difference GMM estimation following Arellano and Bond (1991) is used as a robustness check. The results of the descriptive analysis showed a clear dominance of current expenditures, with exceptions on only three occasions. Furthermore, fiscal priorities within the development and current expenditures differ across tiers. Budget rigidity is also not uniform; rather, it appears to be specific to certain sectors. Overall, the findings suggest that broader reforms in fiscal planning and expenditure management may play an important role in improving budget flexibility.
